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Groupama Asset Management

PRI reporting framework 2020

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Investment policy

SG 01. RI policy and coverage

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate if you have an investment policy that covers your responsible investment approach.

01.2. Indicate the components/types and coverage of your policy.

Select all that apply

Policy components/types

Coverage by AUM

01.3. Indicate if the investment policy covers any of the following

01.4. Describe your organisation’s investment principles and overall investment strategy, interpretation of fiduciary (or equivalent) duties,and how they consider ESG factors and real economy impact.

Groupama AM is a long-standing player in sustainable finance in France and Europe. We placed sustainable investment at the heart of our strategic vision for the long term, with generalized integration of ESG factors into investment analysis and investment decisions.  We launched our first SRI fund in 2001, Euro Capital Durable, and created a team of internal financial and ESG analysts in 2003. In 2016, we enhanced the integration of ESG factors into investment analysis by merging non financial analysis with financial analysis, as we believe it is the best way to have a material approach of ESG integration. Groupama AM also assists investors in defining and calibrating appropriate operational criteria if they are wishing to take ESG factors into account in their investment management. In 2018, Groupama AM decided to launch a new ESG Strategy, in order to put in place a more formalized approach of ESG integration into our investment decisions and to enhance our ability to answer our clients' demands on ESG aspects. For that, a new division was created and the Director of Research was also appointed Director of ESG Strategy, directly referring to our CEO. 

01.5. Provide a brief description of the key elements, any variations or exceptions to your investment policy that covers your responsible investment approach. [Optional]

I - Incorporation of ESG criteria

Groupama AM offers its customers a resolutely active, conviction-based management approach, with an emphasis on medium to long-term investment. Our approach aims to incorporate ESG in every asset class (equity, credit and sovereign bonds). This conviction-based style of investment management requires to understand the transformations taking place in our society, prompt and effective identification of risks and rapid detection of the new opportunities for generating added value. We believe that three transitions are profoundly transforming today’s businees models and that ESG provides a key to analyze their impacts on corporates :

Energy and environmental transition: change over from an economy founded on fossil fuels to an economy based on low-carbon energy sources, with management of the environmental impacts of their activities.
Digital transition: in-depth transformation of the internal processes of companies and of their relations with their customers and suppliers and with civil society, due to the use of new technologies and their capacity to store and manage data on a massive scale (“big data”).
Demographic transition: consequences of social trends – ageing population, urbanization and increasing inequalities – confronting companies with new challenges in the management of their human capital and customers.

With the combination of the ESG and financial roles in the Research team, the same analyst is undertaking the entire investment analysis. For each sector under review, our analysts determine the specific sectorial impacts of these transitions, which help them to select the relevant and material Environmental, Social and Societal criteria for their investment case. Governance is based on a cross-sectorial appraoch, and is a key element of our fundamental analysis. The assessment of each E, S and G pilar can then impact one of our financial critera and therefore leads to a single combined financial and ESG recommendation. With this fundamental financial and ESG analysis, we aim to identify the players that are best positioned or most at risk with regard to the three transitions – digital, demographic and environmental. 

Our ESG integration policy involves formalizing the consideration of ESG criteria in investment decisions, depending on the materiality of the issues at stake (with respect to the issuer and the industry) and the investment process being considered. In this way, ESG criteria reinforce key décisions and help to identify specific risks and opportunities.

To meet this goal we have set up internal ESG training courses for our asset managers.

II - Specific approaches

Groupama AM is also established three dedicated lists related to the specific ESG issues :

  1. List of Major ESG risks :  a list of the highest-risk issuers in terms of ESG. These companies are identified based on two sources : controversial companies flagged by our provider and confirmed with an internal analysis, and companies with very low governance standards according to our internal analysis
  2. List of ESG Opportunities : in 2019, we added a list of the most advanced issuers in terms of ESG issues. The companies on this list are identified by analysts based on their internal analysis. The choice must be justified in a dedicated file.
  3. Carbon Opt-out policy : In 2019, in line with with our historic commitment to Sustainable Finance, Groupama AM took the decision to implement a policy of exclusion from the coal sector. The objective of this policy is to reduce our exposure in our investments to climate risks, whether physical or transition risks. 

A proprietary tools makes all internal ESG and financial research available to portfolio managers, enabling them to integrate ESG factors in their investment process.

III - Dedicated ESG offer

Our SRI range is composed of three funds, two of them are certified by the French "Label ISR" : 

  • SICAV Euro Capital Durable – Label ISR.
  • FCP GROUPAMA Crédit Euro ISR – Label ISR
  • FCP GROUPAMA Etat Euro ISR

Our thematic and impact investing range is compsed of two funds, both are certified by french SRI labels:

  • G Fund Future for Generations - Label ISR
  • G Fund Global Green bonds - Label Greenfin

IV - Shareholder engagement

For Groupama AM, shareholder engagement is a deliberate and constructive initiative by one or more investors to demand that identified companies make real efforts to improve their ESG practices. Our approach is based on both individual and collaborative engagement and on our strong presence on  the Paris market. In the 2019 we have defined the objectives and priority areas of shareholder commitment. We focused both on individual and collaborative engagement.

  • Our individual engagement process is based on: 
    •  A direct and recurrent dialogue on ESG subjects with the top management of the European large caps;
    •  A rigorous voting policy (in place since 2001), which is updated annually. Mobilizing portfolio managers, analysts and middle office, the exercise of voting rights covers more than 200 general assemblies in all the countries of the European area.
    • Meetings with companies before their General Meetings: discussions on the draft-resolutions.
  • Collaborative engagement: participation in collective actions to promote shareholder dialogue as part of the PRI platform. In 2018 we structured our engagement collaborative process. A methodology for selecting, validating and implementating each collaborative commitment was set up. Each new commitment must be signed directly by our CEO.

01.6. Additional information [Optional].

          
        

SG 01 CC. Climate risk

01.6 CC. Indicate whether your organisation has identified transition and physical climate-related risks and opportunities and factored this into the investment strategies and products, within the organisation’s investment time horizon.

Describe the identified transition and physical climate-related risks and opportunities and how they have been factored into the investment strategies/products.

1. We assess environmental issues through our fundamental analysis. Climate related-risks and opportunities are included into our global vision and taken into account for each analyzed company. To identify, assess and manage climate-related risks and opportunities, we have an environmental analysis which has 4 pillars depending on the sectors:

  • Strategic management of environmental (including climate) issues: identify physical risks, transition risks, opportunities related to climate change, governance on environmental issues, management risks process...
  • Change in business model: current positioning of finished products / activities, means implemented by the company to change its business model
  • Climate: carbon footprint, energy efficiency, internal carbon pricing, positioning the company in a 2°C scenario (new indicator in temperature)
  • Resource and externalities management: 1/ efficiency of the production tool: energy consumption, water consumption, protection of biodiversity, 2/ externalities management: waste management, circular economy

Therefore, these environmental and climate issues are taken into account in the final recommendation if they have or will have a material impact on the company's activities and results.

2. Green bonds: an in-house "Green bonds" methodology (updated in 2019). This approach aims to assign an internal assessment to each green bond. Four criteria are analyzed: 1/ characteristics of the green bond (evaluation and selection process, management of proceeds, etc) 2/ environmental quality of the projects 3/ ESG strategy of the company 4/ transparency

3. In 2019, setting up of an exclusion for all portfolios managed by Groupama AM (including dedicated funds and third-party mandates, unless the client instructs otherwise): progressive disinvestment of companies for which more than 30% of Revenue or Production mix is linked to coal (threshold lowered to 20% in 2020).

4. For our Asset and Liability Management:

a. For the last three years, we have been analyzing the climate change exposure of a part of our assets, ie. directly invested equity and corporate bonds in our Asset and Liability Management portfolios (ALM). We choose to focus on 7 sectors, partially because they are carbo-intensive sector and partially because they are providing solutions regarding climate change (Auto, utilities, capital goods, materials, energy, transport and food and beverage). We are classifying each year these issuers in 3 categories, based on our internal fundamental analysis. Each one of this category have an implication regarding portfolio management and investment decisions.

  • Category 1: issuers favorably positioned in relation to the energy transition => Retention or strengthening of securities
  • Category 2: issuers whose positioning and/or implementation of climate policies seem unconvincing in terms of coherence between objectives and means or in terms of dynamic => Issuers "under supervision": No new investment, and in case of prolonged degradation or non-progression, a progressive disinvestment will be plan.
  • Category 3: issuers whose positioning penalizes the energy transition => Total disengagement is targeted.

b. Exclusions: progressive disinvestment of companies for which more than 30% of Revenue or Production mix is linked to coal, and no new investment in companies for which oil sands represents more than 15% of their reserves.

c. A targeted amount invested in Green Bonds.

01.7 CC. Indicate whether the organisation has assessed the likelihood and impact of these climate risks?

Describe the associated timescales linked to these risks and opportunities.

We integrate ESG factors into our investment analysis. Analysts identify ESG material issues across the sector and/or company. ESG material issues (including climate related-risks and opportunities) are issues which have or will have an impact on the company's financials. These issues are taken into account into our final recommendation for an outlook of 18 months. Therefore, our timescale to assess likelihood and impact is 18 months.

01.8 CC. Indicate whether the organisation publicly supports the TCFD?

01.9 CC. Indicate whether there is an organisation-wide strategy in place to identify and manage material climate-related risks and opportunities.

Describe

Within our ESG strategy, we intend to identify and manage all material ESG-related risks and opportunities. Climate is an integral part of our ESG approach.

Our ESG Strategy is implemented by a specific team, with its Director directly referring to Groupama AM's CEO. The implementation of ESG policies is decided and reviewed by a quaterly ESG Strategy Committee. 

Under the ESG Strategy, several working groups were set up, including one whose objective was to formalize the identification of ESG related-risks and opportunities following a sector-specific approach. One of the recommandation of this working group was to undertake a review of our Environemental analysis in order to better highlight climate-related issues and align our analysis with TCFD recommendations, by identifying Climate- Governance, Strategy, Risk Management, Metrics & Targets. This review was conducted in 2018 and led to an evolution of our Environmental fundamental analysis. 

In our environmental fundamental analysis, we use four KPI's to assess the transition risks :

- The carbon footprint: we use scope 1, scope 2, Upstream scope 3 for all sectors and we use sectorial-related carbon footprint when relevant (gCO2/km for the auto sector). In 2019, we changed provider of carbon footprint data. As a result, our scope has been expanded. Before we took into account scope 1, scope 2 and scope 3 first-tier suppliers. Now we take into account scope 1, scope 2 and upstream scope 3.

- Green Share: percentage of positive activities in the revenue of companies. It adresses only the positive side of company activities. The methodology for calculating the green share is based on European taxonomy.

- NEC: Net Environmental Contribution. It is based on the environmental impact of all the products and services of the company: 100% is the best product or service performance available, 0% the industry average and -100% the worst. For example, for a utility, renewable energy would have 100%, and coal -100%. By netting positive and negative contribution to the environmental transition, this indicator is given a full picture of the issuer's performance and contribution and therefore giving an indication of its ability to face transition risks.

- Alignment of the company's strategy with a 2°C scenario (temperature): In 2019, we integrated a new indicator on the alignment of the company's strategy with a 2°C scenario (in temperature) in our internal environmental methodology. This indicator is analyzed under the “Climate” pillar of our methodology. This indicator provides a more forward-looking view of the company's positioning in the face of the energy transition.

1.10 CC. Indicate the documents and/or communications the organisation uses to publish TCFD disclosures.


SG 02. Publicly available RI policy or guidance documents

 

02.1. Indicate which of your investment policy documents (if any) are publicly available. Provide a URL and an attachment of the document.

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02.2. Indicate if any of your investment policy components are publicly available. Provide URL and an attachment of the document.

02.3. Additional information [Optional].


SG 03. Conflicts of interest

03.1. Indicate if your organisation has a policy on managing potential conflicts of interest in the investment process.

03.2. Describe your policy on managing potential conflicts of interest in the investment process.

To prevent the risk of a conflict of interest and to increase its clients’ trust, Groupama AM has implemented a policy of identifying, preventing and managing conflicts of interest by means of a measure which allows the company:

  • to prevent the occurrence of situations involving conflicts of interest which could prevent a decision from being made or cause a mandate or a UCI to be managed differently,
  • to act in its clients’ best interests and to treat them fairly,
  • to respect the integrity of the market in the best possible manner.

To do this, Groupama AM has :

  • mapped different situations involving conflicts of interest which could have an effect on clients' interest
  • established rules of good conduct and of governance
  • set up a system of procedure and controls which consider the risk of a conflict of interest

The measure implemented is based on :

  • - the organisation of functions within the Group : physical and legal separation of activities
  • - procedures intended to prvent, monitor and control
  • - application of the voting policy 
  • - the application of a remuneration policy for associate promoting the sound and efficient management

03.3. Additional information. [Optional]


SG 04. Identifying incidents occurring within portfolios

04.1. Indicate if your organisation has a process for identifying and managing incidents that occur within investee entities.

04.2. Describe your process on managing incidents

Groupama AM is establishing a list of the highest-risk issuers in terms of ESG, our List of Major ESG Risks.

These companies are identified based on two sources :

- Controversial companies : for each company that our provider Sustainalytics is flagging as level 4 and 5, and for companies flagged by our internel Research team (negative newsflow), we conduct an internal analysis in order to confirm the controversy. This internal assessment is based on the nature, the gravity, the severity and the materiality of the controversy and the response of the management. The aim of this internal analysis is to determine the degree of risk that the company is facing. 

- Companies with very low governance standards according to our internal analysis. Our internal governance analysis is systematically assessed through four criteria, and companies are flagged with a very poor governance when three of the four are deemed negative: equal treatment for shareholders, balance of powers and management quality. 

If the conclusion of the analyst is to recommand the entrance on our Major ESG Risks, exit triggers are defined, meaning elements that have to occur to take off the company of the list. For example, when a comapny is facing a risk of fines, one of the possible trigger is to have a clear view of the amount possible, in order to assess the impact on the financials. 

The list is systematically reviewed : 

- every 6 months, during which all the exit triggers are assessed

- for each new controversy or new internal analysis concluding to a very poor governance

Our Major ESG Risks Committee has to approve each entrance or exit recommended by the Research team. This Committee is presided by our Chief Risk Officer and is meeting each time the list is reviewed. 

In the case of the companies monitored by the Research department and included on this list, the analysts cannot issue a share purchase recommendation or a credit recommendation with positive outlook. 

This list is systematically shared with all funds managers and leads to differents impacts :

  • Proprietary rating tool : the quantitative rating of companies targeted in ESG Risk is reduced to zero
  • A non-blocking alert is sent to the portfolio managers
  • These companies are excluded from SRI funds, thematics funds and impact investings funds  
  • For money-market funds, the agreement given by the money-market Committee is limiting the investment in those companies, by authorising only instruments whose maturity is less than one year. 

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